[PDF]DESCRIPTION OF HISTORY OF PAPER MONEY AND ITS VALUE
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Fiat Money
Inflation
In France
How It Came, What It Brought, and How It Ended
by
Andrew Dickson White
LL.D., Ph.D., D.C.L.
Late President and Professor of History at Cornell University;
Sometime United States M inister to Russia and Ambassador to Germany;
Author of “A H istory of the W arfare of Science with Theology," etc.
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Andrew Dickson W hite
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Fiat Money Inflation in France
3
INTRODUCTION
As far back as just before our Civil War I made, in
France and elsewhere, a large collection of documents
which had appeared during the French Revolution,
including newspapers, reports, speeches, pamphlets,
illustrative material of every sort, and, especially,
specimens of nearly all the Revolutionary issues of
paper money,—from notes of ten thousand livres to
those of one sou.
Upon this material, mainly, was based a course of
lectures then given to my students, first at the
University of M ichigan and later at Cornell University,
and among these lectures, one on "Paper Money
Inflation in France."
This was given simply because it showed one
important line of facts in that great struggle; and I
recall, as if it were yesterday, my feeling of regret at
being obliged to bestow so much care and labor upon a
subject to all appearance so utterly devoid of practical
value. I am sure that it never occurred, either to my
M ichigan students or to myself, that it could ever have
any bearing on our own country. It certainly never
entered into our minds that any such folly as that
exhibited in those French documents of the eighteenth
century could ever find supporters in the United States
of the nineteenth.
Some years later, when there began to be
demands for large issues of paper money in the United
States, I wrought some of the facts thus collected into a
speech in the Senate of the State of New York, showing
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the need of especial care in such dealings with
financial necessities.
In 1876, during the "greenback craze," General
Garfield and M r. S. B. Crittenden, both members of the
H ouse of Representatives at that time, asked me to
read a paper on the same general subject before an
audience of Senators and Representatives of both
parties in Washington. This I did, and also gave it later
before an assemblage of men of business at the Union
League Club in New York.
Various editions of the paper were afterward
published, among them, two or three for campaign
purposes, in the hope that they might be of use in
showing to what folly, cruelty, wrong and rain the
passion for "fiat money" may lead.
Other editions were issued at a later period, in
view of the principle involved in the proposed
unlimited coinage of silver in the United States, which
was, at bottom, the idea which led to that fearful wreck
of public and private prosperity in France.
For these editions there was an added reason in
the fact that the utterances of sundry politicians at that
time pointed clearly to issues of paper money
practically unlimited. These men were logical enough
to see that it would be inconsistent to stop at the
unlimited issue of silver dollars which cost really
something when they could issue unlimited paper
dollars which virtually cost nothing.
In thus exhibiting facts which Bishop Butler would
have recognized as confirming his theory of "The
Possible Insanity of States," it is but just to
Fiat Money Inflation in France
5
acknowledge that the French proposal was vastly more
sane than that made in our own country. Those
French issues of paper rested not merely "on the will of
a free people," but on one-third of the entire landed
property of France; on the very choicest of real
property in city and country—the confiscated estates
of the Church and of the fugitive aristocracy—and on
the power to use the paper thus issued in purchasing
this real property at very low prices.
I have taken all pains to be exact, revising the
whole paper in the light of the most recent
publications and giving my authority for every
important statement, and now leave the whole matter
with my readers.
At the request of a Canadian friend, who has
expressed a strong wish that this work be brought
down to date, I have again restudied the subject in the
light of various works which have appeared since my
earlier research,—especially Levasseur's "H istoire des
classes ouvrieres et de I'industrie en France,"—one of
the really great books of the twentieth century;—
Dewarmin's superb "Cent Ans de numismatique
Frangaise" and sundry special treatises. The result has
been that large additions have been made regarding
some important topics, and that various other parts of
my earlier work have been made more clear by better
arrangement and supplementary information.
ANDREW D. WHITE
Cornell University,
September, 3932
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Andrew Dickson W hite
Fiat Money Inflation in France
7
FIAT MONEY INFLATION IN FRANCE 1
How It Came
Early in the year 1789 the French nation found
itself in deep financial embarrassment: there was a
heavy debt and a serious deficit.
The vast reforms of that period, though a lasting
blessing politically, were a temporary evil financially.
There was a general want of confidence in business
circles; capital had shown its proverbial timidity by
retiring out of sight as far as possible; throughout the
land was stagnation.
Statesmanlike measures, careful watching and
wise management would, doubtless, have ere long led
to a return of confidence, a reappearance of money and
a resumption of business; but these involved patience
and self-denial, and, thus far in human history, these
are the rarest products of political wisdom. Few
nations have ever been able to exercise these virtues;
and France was not then one of these few. 2
There was a general search for some short road to
prosperity: ere long the idea was set afloat that the
great want of the country was more of the circulating
medium; and this was speedily followed by calls for an
issue of paper money. The M inister of Finance at this
period was Necker. In financial ability he was
acknowledged as among the great bankers of Europe,
but his was something more than financial ability: he
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had a deep feeling of patriotism and a high sense of
personal honor. The difficulties in his way were great,
but he steadily endeavored to keep France faithful to
those principles in monetary affairs which the general
experience of modem times had found the only path to
national safety. As difficulties arose the National
Assembly drew away from him, and soon came among
the members renewed suggestions of paper money:
orators in public meetings, at the clubs and in the
Assembly, proclaimed it a panacea—a way of "securing
resources without paying interest." Journalists caught
it up and displayed its beauties, among these men,
Marat, who, in his newspaper, "The Friend of the
People," also joined the cries against Necker, picturing
him—a man of sterling honesty, who gave up health
and fortune for the sake of France—as a wretch
seeking only to enrich himself from the public purse.
Against this tendency toward the issue of
irredeemable paper Necker contended as best he
might. H e knew well to what it always had led, even
when surrounded by the most skillful guarantees.
Among those who struggled to support ideas similar to
his was Bergasse, a deputy from Lyons, whose
pamphlets, then and later, against such issues exerted
a wider influence, perhaps, than any others: parts of
them seem fairly inspired. Any one to-day reading his
prophecies of the evils sure to follow such a currency
would certainly ascribe to him a miraculous foresight,
were it not so clear that his prophetic power was due
simply to a knowledge of natural laws revealed by
history. But this current in favor of paper money
became so strong that an effort was made to breast it
by a compromise: and during the last months of 1789
Fiat Money Inflation in France
9
and the first months of 1790 came discussions in the
National Assembly looking to issues of notes based
upon the landed property of the Church,—which was
to be confiscated for that purpose. But care was to be
taken; the issue was to be largely in the shape of notes
of 1000, 300 and 200 livres, too large to be used as
ordinary currency, but of convenient size to be used in
purchasing the Church lands; besides this, they were to
bear interest and this would tempt holders to hoard
them. The Assembly thus held back from issuing
smaller obligations.
Remembrances of the ruin which had come from
the great issues of smaller currency at an earlier day
were still vivid. Yet the pressure toward a popular
currency for universal use grew stronger and stronger.
The finance committee of the Assembly reported that
"the people demand a new circulating medium"; that
"the circulation of paper money is the best of
operations"; that "it is the most free because it reposes
on the will of the people"; that "it will bind the interest
of the citizens to the public good."
The report appealed to the patriotism of the
French people with the following exhortation: "Let us
show to Europe that we understand our own resources;
let us immediately take the broad road to our
liberation instead of dragging ourselves along the
tortuous and obscure paths of fragmentary loans." It
concluded by recommending an issue of paper money
carefully guarded, to the full amount of four hundred
million livres, and the argument was pursued until the
objection to smaller notes faded from view. Typical in
the debate on the whole subject, in its various phases,
were the declarations of M . M atrineau. He was loud
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and long for paper money, his only fear being that the
Committee had not authorized enough of it; he
declared that business was stagnant, and that the sole
cause was a want of more of the circulating medium;
that paper money ought to be made a legal tender; that
the Assembly should rise above prejudices which the
failures of John Law's paper money had caused, several
decades before. Like every supporter of irredeemable
paper money then or since, he seemed to think that
the laws of Nature had changed since previous
disastrous issues. He said: "Paper money under a
despotism is dangerous; it favors corruption; but in a
nation constitutionally governed, which itself takes
care in the emission of its notes, which determines
their number and use, that danger no longer exists."
He insisted that John Law's notes at first restored
prosperity, but that the wretchedness and ruin they
caused resulted from their overissue, and that such an
overissue is possible only under a despotism. 3
M. de la Rochefoucauld gave his opinion that "the
assignats will draw specie out of the coffers where it is
now hoarded. 4
0 n the other hand Cazales and M aury showed
that the result could only be disastrous. Never,
perhaps, did a political prophecy meet with more exact
fulfillment in every line than the terrible picture drawn
in one of Cazales' speeches in this debate. Still the
current ran stronger and stronger; Petion made a
brilliant oration in favor of the report, and Necker's
influence and experience were gradually worn away.
M ingled with the financial argument was a strong
political plea. The National Assembly had determined
Fiat Money Inflation in France
11
to confiscate the vast real property of the French
Church,—the pious accumulations of fifteen hundred
years. There were princely estates in the country,
bishops' palaces and conventual buildings in the
towns; these formed between one-fourth and one-third
of the entire real property of France, and amounted in
value to at least two thousand million livres. By a few
sweeping strokes all this became the property of the
nation. Never, apparently, did a government secure a
more solid basis for a great financial future. 5
There were two special reasons why French
statesmen desired speedily to sell these lands. First, a
financial reason,—to obtain money to relieve the
government. Secondly, a political reason,—to get this
land distributed among the thrifty middle-classes, and
so commit them to the Revolution and to the
government which gave their title.
It was urged, then, that the issue of four hundred
millions of paper, (not in the shape of interest-bearing
bonds, as had at first been proposed, but in notes small
as well as large), would give the treasury something to
pay out immediately, and relieve the national
necessities; that, having been put into circulation, this
paper money would stimulate business; that it would
give to all capitalists, large or small, the means for
buying from the nation the ecclesiastical real estate,
and that from the proceeds of this real estate the
nation would pay its debts and also obtain new funds
for new necessities: never was theory more seductive
both to financiers and statesmen.
It would be a great mistake to suppose that the
statesmen of France, or the French people, were
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ignorant of the dangers in issuing irredeemable paper
money. No matter how skillfully the bright side of
such a currency was exhibited, all thoughtful men in
France remembered its dark side. They knew too well,
from that ruinous experience, seventy years before, in
John Law's time, the difficulties and dangers of a
currency not well based and controlled. They had then
learned how easy it is to issue it; how difficult it is to
check its overissue; how seductively it leads to the
absorption of the means of the workingmen and men
of small fortunes; how heavily it falls on all those living
on fixed incomes, salaries or wages; how securely it
creates on the ruins of the prosperity of all men of
meagre means a class of debauched speculators, the
most injurious class that a nation can harbor, —more
injurious, indeed, than professional criminals whom
the law recognizes and can throttle; how it stimulates
overproduction at first and leaves every industry
flaccid afterward; how it breaks down thrift and
develops political and social immorality. All this
France had been thoroughly taught by experience.
Many then living had felt the result of such an
experiment—the issues of paper money under John
Law, a man who to this day is acknowledged one of the
most ingenious financiers the world has ever known;
and there were then sitting in the National Assembly
of France many who owed the poverty of their families
to those issues of paper. H ardly a man in the country
who had not heard those who issued it cursed as the
authors of the most frightful catastrophe France had
then experienced. 6
It was no mere attempt at theatrical display, but a
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